Derivatives-Hedging and Interbank Funding Costs——Empirical Evidence from A-Share Listed Banks

Guo Fei, Yan Danliang

Studies of International Finance ›› 2022, Vol. 0 ›› Issue (3) : 35-44.

Studies of International Finance ›› 2022, Vol. 0 ›› Issue (3) : 35-44.

Derivatives-Hedging and Interbank Funding Costs——Empirical Evidence from A-Share Listed Banks

  • Guo Fei1, Yan Danliang1,2
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Abstract

Reducing interbank funding costs is important to improve the performance of banks. Effective hedging can manage bank risks, while using derivatives for non-hedging purposes may exacerbate bank and financial risks. Only by reasonably defining effective hedging can we accurately explore the relationship between derivatives hedging and interbank financing costs.
This paper defines effective hedging based on CAS24 （2006） Hedge Accounting standard and takes A-share listed commercial banks from 2010 to 2019 as the research sample to explore the influence of derivatives hedging on interbank funding costs. The empirical results show that the use of derivatives for hedging purpose can significantly reduce the interbank funding costs of commercial banks. The mechanism tests show that the reduction effect of derivatives hedging on interbank funding costs is more pronounced in commercial banks with lower accounting information quality, larger analyst forecast dispersion, higher level of cash flow volatility, and higher operational risk. These results suggest that derivatives hedging plays a greater role in reducing interbank funding costs when the information asymmetry and default risk are higher. Further research shows that cash flow hedging has a more significant effect on reducing interbank funding costs. After the revised Hedge Accounting standard was implemented in 2018, the hedging derivatives used by commercial banks have a stronger effect on reducing interbank funding costs.
The contributions of this paper are as follows. Firstly, this paper discusses the impact of interbank funding costs of com-mercial banks from the perspective of effective hedging,which enriches the literature on the influencing factors of interbank funding costs. Secondly, this paper clarifies the mechanism of derivatives-hedging affecting interbank funding costs. This study provides a theoretical basis for financial regulators to further standardize the use of derivatives and formulate policies. Thirdly, this paper defines and measures effective hedging from the perspective of accounting standard. It tests the role of hedging accounting information and the economic consequences of the CAS24 （2017） implementation, thus the paper provides strong support in improving the accounting standard and quality of derivatives information disclosure.

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Commercial Banks / Derivatives-Hedging / Interbank Funding Costs

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Guo Fei, Yan Danliang. Derivatives-Hedging and Interbank Funding Costs——Empirical Evidence from A-Share Listed Banks[J]. Studies of International Finance, 2022, 0(3): 35-44

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